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Nigeria’s manufacturing sector lags peers despite GDP rebasing

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In spite of the National Bureau of Statistics’ (NBS) rebasing project which could shoot up the $262 billion Nigerian economy to $432 billion and see it overtake South Africa as largest in the continent, the manufacturing sector of the economy still lags behind peers such as Austria with Gross Domestic Product (GDP) of $394 billion, Thailand ($401 billion), Iran ($389 billion), United Arab Emirates ($395 billion) and Argentina ($474 billion).

World Bank data shows manufacturing sector’s contribution to GDP in Austria is 19 percent, while that of Thailand is 34 percent. For South Africa, it is 12 percent, while it is 13 percent for Iran. By comparison, NBS data shows the sector’s contribution to the Nigerian GDP is 4 percent.

World Bank 2014 Doing Business data shows it only takes a day to obtain the confirmation from the Economic Chamber that the start-up company is really a new enterprise in Austria, while no payment is attached.

It also takes four days and a payment of €1500 to notarise the statutes/articles of association or the declaration of establishment as well as one day plus no charge to deposit the minimum capital requirement in the bank.

In South Africa, registration is done at the Companies and Intellectual Property Commission (CIPC) and it costs ZAR175 to do so, taking between five and seven days. The manufacturer is expected to open a bank account between one and two days, without charge, while the firm must register for income tax, VAT, and employee withholding tax (PAYE and SITE) at the South African Revenue Service (SARS) within 12 days at no cost.

In Thailand, the company must first search and reserve a company name online within a day at no cost, deposit paid-in capital in the bank without charge and obtain a corporate seal at THB400, taking about four days. The manufacturer is also to get an approval for memorandum of association, apply to register the company as a legal entity (final registration) and also submit company work regulations at the rate of THB750. This takes 22 days.

In Nigeria, on the other hand, Samuel Oyigbo, a lawyer, told BusinessDay that registering a business at the Corporate Affairs Commission (CAC) often requires a business name search that takes up to two weeks. A payment of between N3,500 and N4,500 often accompanies it.

For companies, where manufacturing firms fall into, registration process is often done in the Abuja Federal Capital Territory office of CAC and it takes about one week, with between N22,000 and N32,000 as payment.

In Thailand, manufacturers borrow loans from commercial banks at 6.9 percent interest rate, according to World Bank data. There is SME Development Bank and the Export-Import Bank of Thailand that liberalise loans to manufacturers.

Like many European countries, lending rate is still low in Austria, at 0.5 percent as at May 2013. Some banks provide loans for manufacturers for up to 20 years and allow up to six months free from repayment.

Lending rate for South Africa as at March 2014 is 9 percent. Government also provides grants for key manufacturers, while the department of trade and investment, Khula Enterprise Finance, South African Micro Finance Apex Fund provide financing for manufacturing.

World Bank data also shows that lending rate in Iran remains 12 percent as at 2012.

In Nigeria, manufacturers groan under high inter-bank interest rate, which hovers between 18 and 30 percent. Lending is cheaper in microfinance banks but there is often a ceiling to the amount to be lent. Though the Bank of Industry (BOI) lends to critical players at an interest rate of between 6 and 10 percent, access is still cumbersome, say manufacturers.

“With the current interest rates hovering between 17 percent and 28 percent and for a growing economy like ours, it will be difficult to achieve the desired economic growth and motivate indigenous entrepreneurs to create businesses since they will not be competitive with their foreign counterparts who obtain fund from their countries at single digit and invest in the Nigerian economy,” said Mohammed Badaru Abubakar, national president, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA).

Cobalt’s January to June 2013 non-oil exports data reveals that, of $1.52 billion non-oil exports within the period, manufacturing recorded only $0.285 billion, while other commodity exports picked a whopping $1.23 billion. Manufacturing’s share represents just 19 percent of the total exports.

The manufacturing sector has the capacity to create direct and indirect jobs. NBS data shows that many of the jobs created in 2013 were from manufacturing, construction and financial intermediation.  Increase in job generation from the manufacturing sector in 2013 was 63.20 percent.

Analysts attribute this to waivers and incentives given to cement, sugar and manufacturing exporters within the period and say development of the sector will increase foreign exchange earnings, create wealth and develop subsidiary sectors.

“We need to look into issues such as high energy costs, high cost of funds and regulatory pressure if we want this sector to create sufficient jobs,” said Goodie Ibru, immediate past president, Lagos Chamber of Commerce and Industry, at a forum last year.

Austria is an export-dependent country and ranks 18 out of 187 in the United Nations Human Development Index. Exports account for $163.1 billion, while commodities such as machinery, motor vehicles and parts, chemicals, iron and steel are exported to Germany, Italy, among others.

The Thai economy is heavily export-dependent, with exports accounting for more than two-thirds of GDP. For exports, automobiles and automotive parts account for 11 percent, electric appliances and components (8 percent). The country ranks 103 in HDI.

South Africa has shifted from a primary and secondary economy to an economy driven primarily by the tertiary sector in the present day which accounts for an estimated 65 percent of GDP. Mining (world’s largest producer of platinum), gold, chromium, automobile assembly, metalworking, machinery, textiles, iron and steel, chemicals, fertiliser, foodstuffs, commercial ship repair are some of its trade. It ranks 121 in HDI.

Iran ranks 76 in HDI. Major exports are petroleum (80 percent), chemical and petrochemical, nuts, fruits, electronics, fertilisers, caustic soda, among others.

On the other hand, Nigeria is an import-dependent country, with petroleum and its products accounting for exports. Solid minerals sector is still lying bare. Nigeria ranks 153 out of 187 in UN HDI ranking, weighed on the balances of education, health and income.

ODINAKA ANUDU

2 Responses to Nigeria’s manufacturing sector lags peers despite GDP rebasing

  1. Please crosscheck your figures.Nigeria’s manufacturing is more than 4% of GDP. These are outdated figures and NBS should do a good job at rebasing it. The informal sector manufacturing alone plus the resurgence we are currently witnessing in manufacturing cannot be less than 12% of GDP
    Dr. Fatusin Afolabi.

    fatusin Afolabi
    March 31, 2014 at 8:46 am
    Reply

    • Well, the writer only quoted the NBS and did not manufacture the figure. But generally, your point informs why GDP rebasing is about to be done.

      John Ilaro
      March 31, 2014 at 4:10 pm
      Reply

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